December 9, 2014: Canadian securities regulators have published proposed amendments to legislation which in part clarify the “business trigger” for when a “start-up” or non-active-business issuer may be required to “register” in order to “trade” in or sell securities to investors.

The additional guidance is intended to make it clear that a start-up issuer will be considered to have an active non-securities business and therefore will not be required to register if it has a bona fide business plan and is raising capital to advance that plan.

Although the entity does not need to be producing a product or delivering a service, it must have a bona fide plan to do so, generally within a specified period. For example, technology or resource exploration companies may raise money with only a business plan for many years before they start producing a product, delivering a service or developing a tangible asset, but generally the business plan will include milestones and the time anticipated to reach those milestones

The capital raising must be primarily for the purpose of supporting the advancement of the business plan, not to simply sustain the issuer. The use of the proceeds must support the business plan. If the capital raising and use of that capital is not advancing the business, the issuer may need to register as a dealer.